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Wage stagnation. Blame grad school?

The chart below from Kevin Drum at Mother Jones shows that median wage for 25-34 year olds have been stagnating or declining for more than a decade.

Wages don’t include other benefits, of course, but similar wage stagnation hasn’t been seen among older Americans. Two things about this chart:

First: I’m seeing anti-immigrant activists using data like this to argue against increased immigration into the United States. If we let more people in, they say, we’ll risk driving wages down even further as cheap labor undercuts the wage demands of already-here Americans.

I debunked this fallacy in The Freeman last month. I explained that while this might be true in the short run, the long run gains from a bigger pool of labor will almost certainly far outweigh whatever layoffs and pay cuts happen as the economy grows to accommodate more laborers. And of course, limiting the supply of labor by cutting off immigration in order to boost wages for those already working is no different than simply raising the minimum working age to 25 or 30 years. I think most people realize why this is a bad idea and would limit economic growth — fewer low-wage laborers means higher costs of production and higher consumer prices all around.

Second: Why would wages stagnate like this? Aren’t young people today more educated than young people of previous generations? Shouldn’t they be earning more…especially considering 6 years of relatively stable economic growth between 2001 and 2007?

A theory of mine, based on information from a recent Brookings Institution study, is that longer matriculation has something to do with this. According to that study, more young people these days are choosing to go to graduate school. These students are bright and not likely to be content earning $30,000 per year. This means that the 25-34 year old labor force is missing a sizable number of its brightest people, which skews the average wage downward. Those left in the labor force are more likely than members of older age groups to have performed poorly in college or, for that matter, not have gone to college altogether. Once you get above 34 years, most people have already completed their graduate degrees and have entered the labor market, thereby driving their age group’s average wage higher.